Quinn’s cigarette-tax hike could turn smokers into smugglers

From: Medill Reports (written and produced by graduate journalism students at Northwestern University’s Medill school.)

by LiLi Tan

I don’t buy cigarettes in Chicago. It’s $10 a pack here,” said Murat Kabile, 25, a DePaul University student, who admitted he buys his cigarettes in another county southwest of Cook.

If, however, Gov. Pat Quinn’s proposed cigarette tax-hike passes the Senate, Kabile may have to look further, even out of state, to buy his cigarettes at a more affordable price.

Last week, the House approved the legislation in a 60-52 vote to raise cigarette prices by $1 as a public health measure to curb smoking rates and to help fund Medicaid shortfalls.

However, out-of-state buying and smuggling could reduce tax revenues and spur crime rates, according economists.

Currently, Illinois ranks 32nd among states with the highest cigarette taxes, with 98-cents per pack, according to a 2012 survey by the Federation of Tax Administrators.

Raising the tax by $1, as Quinn proposes, would raise the state’s ranking to 16th and put Illinois among the top states for smuggling in the U.S.

Smuggled cigarettes would jump from 6 percent to 24 percent of Illinois’ total cigarette consumption, according to a 2010 study by The Mackinac Center for Public Policy.
Even at the state’s current rates and ranking, smuggling is already an issue in Illinois.

In March, longtime Cook County sheriff police official Lawrence A. Draus was charged with accepting a $10,000 bribe to protect a cigarette bootlegging operation. He and his son Lawrence E. Draus also sold millions of dollars worth of unstamped cigarettes in Chicago.

“Smuggling has even spurted some violent crime, and that’s a situation you want to avoid,” Scott Drenkard, an economist for the Tax Foundation, said, citing a 2002 incident in California where armed robbers held up a distribution center and stole palettes of cigarettes and rolls of state cigarette tax stamps totaling more than $1 million.

“Being in a place where you’re not sticking out as the highest rate in the country is a good place to avoid,” Drenkard said.

Plus, “raising taxes only works to a certain extent. Cigarettes are expensive and becoming more expensive. With regards to state taxes, there’s a bootlegging alternative…the higher the tax rate, the more cheating there is,”  said J. Fred Giertz, professor of economics at the University of Illinois at Urbana-Champaign.

Other states have seen a reduction of smoking rates thanks to cigarette tax hikes, but even then there seems to be a saturation point.

“In Maine, there was an interesting situation where they increased the price of tobacco pretty steadily and saw decreasing high school smoking rates…and then they increased it from $1 a pack to $2 a pack and the trend just totally fell apart,” Drenkard said.
On the other hand,  some experts  have found that taxes do work.

Frank Chaloupka, economics professor at the University of Illinois at Chicago, recently published a research paper that found large duties like Quinn’s proposed tax hike curb youth smoking.

“Incremental changes have very small effects, but this sort of large tax increase will be more noticeable at the register and change peoples’ behavior,” said Chaloupka, who found that a 10 percent increase in tax reduced youth smoking prevalence by about 6 percent.

He also does not regard smuggling or out-of-state buying to be a persistent problem.

“These tend to be short-lived effects because people realize it takes time and effort to cross the border,” Chaloupka said.

Still, less-mobile and budget-conscious smokers like DePaul University graduate student Tiana Patterson, 28, who said she could always “switch to cheaper brands,” which is what she did after previous tax increases.

Many others have downgraded from cigarettes and roll-your-own tobacco to less-expensive alternatives.

Monthly U.S. sales of pipe tobacco rose to more than 3 million pounds in September 2011, which is nearly 13 times what it was in January 2009. During the same time period, large cigar sales went from 411 million to more than 1 billion cigars, according to the U.S. Government Accountability Office. The study, published in April, examined tobacco product market shifts after tax increases resulted from the Children’s Health Insurance Program Reauthorization Act of 2009.

In the end, Patterson said she would opt to quit smoking rather than downgrade again or drive across state lines. “It’s a silly habit and I know that it’s bad,” she said.

Others like 22-year-old barista Nora Carroll are more resistant, and said she’d have cigarettes shipped to her if they were less expensive.
Carroll predicted that venturing out of state may not be enough, saying she might take smuggling a great leap further: “I hear they’re cheap in China.”


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